oversight

Management Reform: Continuing Progress in Implementing Initiatives in the President's Management Agenda

Published by the Government Accountability Office on 2003-03-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office

GAO                          Testimony
                             Before the Subcommittee on Government Efficiency and
                             Financial Management, Committee on Government
                             Reform, House of Representatives


For Release on Delivery
Expected at 10:30 a.m. EST
Wednesday, March 26, 2003
                             MANAGEMENT REFORM
                             Continuing Progress in
                             Implementing Initiatives in
                             the President’s
                             Management Agenda
                             Statement of Patricia A. Dalton, Director
                             Strategic Issues




GAO-03-556T
                             a
                                               March 26, 2003


                                               MANAGEMENT REFORM

                                               Continuing Progress in Implementing
Highlights of GAO-03-556T, a report to
Subcommittee on Government Efficiency          Initiatives in the President's Management
and Financial Management, Committee on
Government Reform, House of
Representatives
                                               Agenda


As part of its work to improve the             There has been continuing progress in implementing the five crosscutting
management and the performance                 PMA initiatives to improve the management and performance of the federal
of the federal government, GAO                 government. However, progress has been uneven, and a continuing focus is
monitors progress and continuing               needed to improve the management and performance of the federal
challenges related to the five                 government and ensure accountability.
crosscutting initiatives in the
President’s Management Agenda
(PMA). The President cited GAO’s               These five crosscutting PMA initiatives are interrelated and must be
high-risk areas and major                      addressed in an integrated way.
management challenges in
developing these initiatives. GAO              •   Strategic human capital management: Considerable progress has
remains committed to working                       been made in this area since we designated it as high risk in 2001.
with the Congress and the                          Serious human capital shortfalls, however, continue to erode the ability
Administration to help address                     of many agencies, and threaten the ability of others, to economically,
these complex issues.                              efficiently, and effectively perform their missions.

                                               •   Budget and performance integration: The administration has set
We are not making any                              forth an ambitious agenda for performance budgeting but the federal
recommendations in this                            government has a long way to go before it can meet its goals. More
testimony, but these steps can
                                                   explicitly infusing performance information into resource allocation
further progress:
•    OMB’s support will be needed                  decisions is critical for further progress in government performance and
     as agencies identify targeted                 management.
     investment opportunities to
     address human capital                     •   Improved financial performance: This initiative is aimed at ensuring
     shortfalls. Over time,                        that federal financial systems produce accurate and timely information
     comprehensive human capital                   to support operating, budget, and policy decisions. Although a range of
     reform is needed.                             improvements is under way, much work remains to be done across
•    Congress and the executive                    government.
     branch need better
     information about the link                •   Expanded electronic government: E-government offers many
     between resources and results
                                                   opportunities to better serve the public, make government more efficient
     to prioritize competing claims
     on the federal budget.                        and effective, and reduce costs. Although substantial progress has been
•    Quality financial management                  made, the government has not yet fully reached its potential in this area.
     systems are crucial for
     agencies to achieve PMA goals.            •   Competitive sourcing: The administration has committed to using
•    E-government initiatives                      competitions to determine whether public or private sources should
     require effective risk-                       provide commercial services. OMB has proposed changes to the
     management and                                procedures for conducting public-private competitions under its Circular
     comprehensive strategies to                   A-76. However, some of the proposed changes are not consistent with
     guide agencies efforts.                       sourcing principles or recommendations of the Commercial Activities
•    Continued emphasis on                         Panel.
     improving public-private
     competitions is needed.
                                               Congressional support has proven to be critical in sustaining interest in
www.gao.gov/cgi-bin/getrpt?GAO-00-556T.
                                               management initiatives over time. A focus on the quality of program
To view the full report, including the scope   performance and effective management is critical today, and now is the time
and methodology, click on the link above.      to act.
For more information, contact Patricia A.
Dalton at (202) 512-6806 or
daltonp@gao.gov.
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss continuing progress in
implementing the President’s Management Agenda (PMA) initiatives to
improve the management and performance of the federal government.
PMA points out important challenges for the federal government and is
intended to focus agencies’ efforts on making needed improvements. It
establishes priorities for five crosscutting challenges and nine program
initiatives. There are clear links between the PMA initiatives and the high-
risk areas and major management challenges covered in our 2003 and 2001
Performance and Accountability and High-Risk Series. Many of these
issues are complex and long-standing, and we are committed to working
with Congress and the administration to help address them.

The President’s 2004 budget recognized that although progress has been
made, it has been uneven and there needs to be a continuing focus on
improving effectiveness and getting results from federal spending. As
discussed in our 2003 Governmentwide Perspective, 1 several major trends,
including diffuse security threats and national preparedness, globalization,
a shift to knowledge-based economies, and advances in science and
technology, are driving the need for federal agencies to transform their
cultures and operations. Budgetary flexibility has been shrinking for some
time and long-range fiscal and demographic pressures affect the long-term
outlook of the federal government. The retirement of the baby boom
generation and rising health care costs threaten to overwhelm our nation’s
finances. Within this context, government leaders must be accountable for
making needed changes to resolve high-risk areas, address major
management challenges, and position the federal government to take
advantage of emerging opportunities and meet future challenges.

Today, as agreed with the subcommittee, my statement will focus on the
progress made in the five crosscutting initiatives in PMA and the next steps
our work shows will be key to effectively enhance the management and
performance of the federal government. I will also highlight the importance
of transparency and congressional oversight in continuing to provide the
attention needed to improve management and performance across the
federal government and ensure accountability. Overall, there has been
continuing progress in implementing the governmentwide PMA initiatives.


1
U.S. General Accounting Office, Major Management Challenges and Program Risks: A
Governmentwide Perspective, GAO-03-95 (Washington, D.C.: January 2003).




Page 1                                                                 GAO-03-556T
                        This progress, however, has been uneven and a continuing focus is needed
                        to improve the management and performance of the federal government
                        and ensure accountability. This testimony draws upon our wide-ranging
                        ongoing and completed work on federal management and transformation
                        issues and analysis of PMA initiatives and the President’s 2004 Budget of
                        the U.S Government. We conducted our work in accordance with generally
                        accepted government auditing standards.



Effective Management    The President cited our work on high-risk areas and major management
                        challenges in developing his initiatives, and implementation of PMA has
Is Required to Create   reinforced the need to focus agencies’ efforts on achieving key
and Sustain High-       management and performance improvements. Our work shows that
                        agencies have made progress in these areas—although more needs to be
performing              done. A focus on the quality of program performance and effective
Organizations           management is critical today, and now is the time to act. Building on
                        lessons learned, major programs and operations need urgent attention and
                        transformation to ensure that the government functions as economically,
                        efficiently, and effectively as possible. Management reform will be vitally
                        important for agencies to transform their cultures to respond to the
                        transition that is taking place in the role of government in the 21st century.

                        The Executive Branch Management Scorecards have highlighted agencies’
                        progress in achieving management and performance improvements. We
                        have found that the value in the scorecards is not, in fact, in the scoring, but
                        in the degree to which scores lead to a sustained focus and demonstrable
                        improvements. The Office of Management and Budget (OMB) uses a
                        grading system of red, yellow, and green, to indicate agencies’ status in
                        achieving the standards of success. It also assesses and reports progress
                        using a similar “stoplight” system. Although we collaborated in some cases
                        with OMB and the lead agencies regarding the broad standards of success,
                        we have not had the opportunity to review the more specific criteria that
                        OMB uses to assess each agency’s progress on these initiatives nor have we
                        examined the specific evidence that OMB used to assess the agency’s
                        accomplishments.

                        By calling attention to needed improvements, the focus that PMA and the
                        scorecards bring is certainly a step in the right direction. PMA initiatives
                        are consistent in key aspects with the statutory reforms related to financial
                        management, information technology, and results-oriented management
                        that Congress enacted during the 1990s. In crafting that framework,




                        Page 2                                                              GAO-03-556T
                          Congress sought to provide a basis for improving the federal government’s
                          effectiveness, financial condition, and operating performance.

                          Central to effectively addressing the government’s management problems
                          and providing a solid base for successful transformation efforts is the
                          recognition that fundamental management practices and principles cannot
                          be addressed in an isolated or piecemeal fashion separate from the other
                          major management challenges and high risks facing federal agencies.
                          Rather, these efforts are mutually reinforcing and must be addressed in an
                          integrated way to ensure that there is the needed management capacity to
                          drive a broader transformation of the cultures of federal agencies.

                          The President has identified five crosscutting management initiatives that
                          are interrelated and support each other. A comprehensive planning process
                          that establishes clear goals and objectives linked to decision-making and
                          resource allocation processes will continue to be critical in achieving the
                          desired results and the synergy that can advance and support
                          governmentwide transformation efforts. These five initiatives are:

                          • strategic human capital management,

                          • budget and performance integration,

                          • improved financial performance,

                          • expanded electronic government, and

                          • competitive sourcing.



Strategic Human Capital   People are an agency’s most important organizational asset, and strategic
Management                human capital management should be the centerpiece of any serious
                          change management initiative or any effort to transform the cultures of
                          government agencies. Considerable progress has been made in this area
                          since we designated it as high risk in 2001.2 Legislation has been enacted
                          that, among other things, creates the Chief Human Capital Officer (CHCO)
                          position within federal departments, and a CHCO Council, expanded


                          2
                            U.S. General Accounting Office, High-Risk Series: Strategic Human Capital Management,
                          GAO-03-120 (Washington, D.C.: January 2003); and High-Risk Series: An Update, GAO-03-
                          119 (Washington, D.C.: January 2003).




                          Page 3                                                                    GAO-03-556T
voluntary early retirement and buyout authority, authorized the use of
category rating in the hiring of applicants instead of the “rule of three,” and
requires agencies to discuss human capital approaches in Government
Performance and Results Act (GPRA) plans and reports.3

Serious human capital shortfalls, however, continue to erode the ability of
many agencies, and threaten the ability of others, to economically,
efficiently, and effectively perform their missions. Plainly, the major
problem is not federal employees. Rather, it is the lack of a consistent
strategic approach to marshaling, managing, and maintaining the human
capital needed to maximize government performance and ensure its
accountability. An organization’s people define its character, affect its
capacity to perform, and represent the knowledge base of the organization.

Although progress has been made, it remains clear that today’s federal
human capital strategies are not appropriately constituted to meet current
and emerging challenges or drive the needed transformation across the
federal government. Specifically, agencies continue to face challenges in
four key areas:

• Leadership: Top leadership in agencies must provide the committed and
  inspired attention needed to address human capital and related
  organizational transformation issues.

• Strategic human capital planning: Agencies’ human capital planning
  efforts need to be more fully and demonstrably integrated with mission
  and critical program goals.

• Acquiring, developing, and retaining talent: Additional efforts are
  needed to improve recruiting, hiring, professional development, and
  retention strategies to ensure that agencies have the needed talent.

• Results-oriented organizational cultures: Agencies continue to lack
  organizational cultures that promote high performance and
  accountability and that empower and include employees in setting and
  accomplishing programmatic goals.



3
 Category rating allows a selecting official to select a candidate from all qualified candidates
instead of limiting the selecting official to only the top three ranked candidates as set forth
in 5 USC Section 3318(a).




Page 4                                                                            GAO-03-556T
                                                  One step in meeting the government’s human capital challenges is for
                                                  agency leaders to identify and make use of all the appropriate
                                                  administrative authorities available to them to manage their people both
                                                  effectively and equitably. Much of the authority agency leaders need to
                                                  manage human capital strategically is already available under current laws
                                                  and regulations, as recognized by PMA. We recently reported on a set of
                                                  practices that are key to the effective use of flexibilities.4 These practices
                                                  are shown in figure 1.



Figure 1: Key Practices for Effective Use of Human Capital Flexibilities
 Plan strategically and make      •   Obtain agency leadership commitment
 targeted investments             •   Determine agency workforce needs using fact-based analysis
                                  •   Develop strategies that employ appropriate flexibilities to meet workforce needs
                                  •   Make appropriate funding available

 Ensure stakeholder input in      •   Engage the human capital office
 developing policies and          •   Engage agency managers and supervisors
 procedures                       •   Involve employees and unions
                                  •   Use input to establish clear, documented, and transparent policies and procedures

 Educate managers and             • Train human capital staff
 employees on the availability    • Educate agency managers and supervisors on existence and use of flexibilities
 and use of flexibilities         • Inform employees of procedures and rights

 Streamline and improve           • Ascertain the source of existing requirements
 administrative processes         • Reevaluate administrative approval processes for greater efficiency
                                  • Replicate proven successes of others

 Build transparency and           • Delegate authority to use flexibilities to appropriate levels within the agency
 accountability into the system   • Hold managers and supervisors directly accountable
                                  • Apply policies and procedures consistently

 Change the organizational        • Ensure involvement of senior human capital managers in key decision-making processes
 culture                          • Encourage greater acceptance of prudent risk taking and organizational change
                                  • Recognize differences in individual job performance and competencies
 Source: GAO.




                                                  Another step in meeting the government’s human capital challenges is for
                                                  policymakers to continue to pursue incremental legislative reforms to give
                                                  agencies additional tools and flexibilities to hire, manage, and retain the
                                                  human capital they need, particularly in critical occupations. The National
                                                  Aeronautics and Space Administration (NASA), for example, is facing


                                                  4
                                                  U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist
                                                  Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).




                                                  Page 5                                                                     GAO-03-556T
shortages in its workforce which could likely worsen as the workforce
continues to age and the pipeline of talent shrinks.5 This dilemma is more
pronounced among areas crucial to NASA’s ability to perform its mission,
such as engineering, science, and information technology. NASA is
addressing this challenge through strategic planning, a new workforce
planning and analysis system, and requesting additional personnel
flexibilities, among other initiatives.

Over time, however, it will be important for all interested parties to work
together to identify the kinds of comprehensive legislative reforms in the
human capital area that should be enacted. These reforms should place
greater emphasis on knowledge, skills, and performance in connection
with federal employment, promotion, and compensation decisions. This
summer the Comptroller General will be convening a forum to discuss the
key actions needed for significant human capital reform.

Federal agencies need to continue to incorporate a crucial ingredient found
in successful organizations: organizational cultures that promote high
performance and accountability. Effective performance systems align
organizational goals with daily operations and thereby create a “line of
sight” between an individual’s efforts and results that the organization is
trying to achieve. In doing so, performance management systems can be a
strategic tool to drive internal change and achieve external results by
creating a shared perspective and demonstrating how unit, team, and
individual performance can contribute to overall organizational goals.
Agencies can also foster a results-oriented culture by the way that they
treat and manage their people, building commitment and accountability
through involving and empowering employees. Effective changes can only
be made and sustained through the cooperation of leaders, union
representatives, and employees throughout an organization. We have work
under way, at the request of Congress, to assess the extent to which
employees are involved in the formation of the human resource system at
the Department of Homeland Security.

We collaborated with the Office of Personnel Management (OPM) and OMB
in developing language for the standards for success that OPM released. As
OPM, OMB, and the agencies learn to evaluate themselves against the


5
 U.S. General Accounting Office, Major Management Challenges and Program Risks:
National Aeronautics and Space Administration, GAO-03-114 (Washington, D.C.: Jan.
2003).




Page 6                                                                   GAO-03-556T
                         standards for success in implementing strategic human capital
                         management approaches, OPM and OMB will need to ensure that the
                         standards are consistently and appropriately applied while they assess
                         agencies’ progress in managing their human capital. Importantly, OMB’s
                         support will be needed as agencies identify targeted investment
                         opportunities to address human capital shortfalls. In the final analysis,
                         modern, effective, and credible human capital strategies will be essential in
                         order to maximize the performance and ensure the accountability of the
                         government for the benefit of the American people.



Budget and Performance   PMA recognized that improvements in the management of human capital,
Integration              financial performance, and expanding electronic government, and
                         competitive sourcing matter little if they are not linked to program
                         performance and resource allocation decisions. The administration has set
                         forth an ambitious agenda for performance budgeting, calling for agencies
                         to develop cost accounting systems and proposing to better align the
                         federal budget structure with their performance goals. Such efforts to
                         begin implementing a consistent and transparent framework for
                         performance budgeting and financial information are key steps needed to
                         provide a greater focus on performance and improve congressional
                         decision making as envisioned in GPRA, but the federal government has a
                         long way to go before it can meet these goals.

                         Performance-based budgeting can help shift the focus of debate from
                         inputs to outcomes and results, enhancing the government’s ability to
                         gauge performance and assess competing claims for scarce resources.6
                         Building on the statutory framework that Congress enacted over the last
                         decade, performance budgeting requires results-oriented performance
                         information generated by federal agencies in response to GPRA, and cost
                         accounting data generated in response to provisions of the Chief Financial
                         Officers (CFO) Act. Sustained leadership attention, however, is needed to
                         build on this foundation.

                         Integrating management and performance issues with budgeting is
                         absolutely critical for progress in government performance and
                         management. Such integration is obviously important to ensuring that
                         management initiatives obtain the resource commitments and sustained

                         6
                         U.S. General Accounting Office, Performance Budgeting: Opportunities and Challenges,
                         GAO-02-1106T (Washington, D.C.: Sept. 19, 2002).




                         Page 7                                                                   GAO-03-556T
leadership commitment throughout government needed to be successful.
Moreover, the budget process is one of the major processes in the federal
government in which programs and activities come up for regular review
and reexamination. Thus there is a compelling need to ensure that trade-
offs are informed by reliable information on results and costs.

Performance budgeting can help shift the focus of budgetary debates and
oversight activities by changing the agenda of questions asked.
Performance information can help policymakers address a number of
questions such as whether programs are (1) contributing to their stated
goals, (2) well-coordinated with related initiatives at the federal level or
elsewhere, and (3) targeted to those most in need of services or benefits.
Results-oriented information is also needed for better day-to-day
management and agency decision-making. It can provide information on
what outcomes are being achieved, whether resource investments have
benefits that exceed their costs, and whether program managers have the
requisite capacities to achieve promised results.

While budget reviews have always involved discussions of program
performance, such discussions have not always been conducted in a
common language or with transparency. Last year, OMB introduced a
formal assessment tool into the deliberations. PART—the Program
Assessment Rating Tool—is the central element in the performance
budgeting piece of the PMA. Potentially, PART can complement GPRA’s
focus on increasing the supply of credible performance information by
promoting the demand for this information in the budget formulation
process. PART’s greatest contribution may turn out to be its usefulness in
focusing discussions between OMB and the agencies about progress
towards planned performance; about what progress has been made toward
achieving specific program goals and objectives; and about what tools and
strategies may be used to bring about improvements. As with performance
budgeting in general, no assessment tool can magically resolve debates or
answer questions. Rather, it is likely to be a useful screen to help identify
programs for further evaluation.

Credible performance information can facilitate a fundamental
reassessment of what the government does and how it does business by
focusing on the outcomes achieved with budgetary resources. Therefore,
the goals and measures that agencies establish must address program
results. Our work has shown that agencies had at least some goals and
measures that address program results, but improvement is needed to
ensure that agencies measure performance toward a comprehensive set of



Page 8                                                            GAO-03-556T
goals that focus on results.7 In addition, it is important for performance
measures to provide complete information. For example, in measuring
customer satisfaction, the Small Business Administration uses results of its
survey of successful disaster loan applicants, but unsuccessful applicants
are not surveyed, which is likely to produce positively skewed responses.8

Understanding performance issues requires an in-depth evaluation of the
factors contributing to the program results. Targeted evaluation studies can
be designed to detect important program side effects or to assess the
comparative advantages of current programs to alternative strategies for
achieving a program’s goals. Further, although the evaluation of programs
in isolation may be revealing, it is often critical to understand how each
program fits with a broader portfolio of tools and strategies to accomplish
federal missions and performance goals. Such an analysis is necessary to
capture whether a program complements and supports other related
programs, whether it is duplicative and redundant, or whether it actually
works at cross-purposes with other initiatives.

Furthermore, while no data are perfect, agencies need to have sufficiently
credible performance data to provide transparency of government
operations so that Congress, program managers, and other decision makers
can use the information. However, limited confidence in the credibility of
performance data has been one of the major weaknesses in GPRA
implementation. Based on our review of agencies fiscal year 2000 and 2001
performance reports, agencies are not consistently assessing the
completeness and reliability of their performance data as required by the
Reports Consolidation Act of 2000.9




7
 U.S. General Accounting Office, Performance Reporting: Few Agencies Reported on the
Completeness and Reliability of Performance Data, GAO-02-372 (Washington, D.C.: Apr.
26, 2002); and Managing for Results: Opportunities for Continued Improvements in
Agencies’ Performance Plans, GAO/GGD/AIMD-99-215 (Washington, D.C.: July 20, 1999).
8
U.S. General Accounting Office, Major Management Challenges and Program Risks: Small
Business Administration, GAO-03-116 (Washington, D.C.: January 2003).
9
 U.S. General Accounting Office, Results-Oriented Management: Agency Crosscutting
Actions and Plans in Drug Control, Family Poverty, Financial Institution Regulation,
and Public Health Systems, GAO-03-320 (Washington, D.C.: Dec. 20, 2002); Results-
Oriented Management: Agency Crosscutting Actions and Plans in Border Control, Flood
Mitigation and Insurance, Wetlands, and Wildland Fire Management, GAO-03-321
(Washington, D.C.: Dec. 20, 2002); and GAO-02-372.




Page 9                                                                    GAO-03-556T
                     In attempting to link resources to results, it also will be important to
                     measure the full costs of the resources associated with performance goals
                     using consistent definitions of costs between and among programs. In
                     looking ahead, the integration of reliable cost accounting data into budget
                     debates needs to become a key part of the performance budgeting agenda.
                     Also, the current budget does not always help policymakers consider the
                     long-term costs associated with some activities that commit the
                     government to future spending. This may limit the attention given to the
                     future sustainability and flexibility of the government’s fiscal position and
                     the cost effectiveness of existing programs.

                     Although clearly much more remains to be done, together GPRA and the
                     CFO Act have laid the foundation for performance budgeting by
                     establishing infrastructures in the agencies to improve the supply of
                     information on performance and costs. Merely the number of programs
                     “killed” or a measurement of funding changes against performance
                     “grades” cannot measure the success of performance budgeting. Rather,
                     success must be measured in terms of the quality of the discussion, the
                     transparency of the information, the meaningfulness of that information to
                     key stakeholders, and how it is used in the decision-making process. The
                     determination of priorities is a function of competing values and interests
                     that may be informed by performance information but also reflects such
                     factors as equity, unmet needs, and the perceived appropriate role of the
                     federal government in addressing these needs. If members of Congress and
                     the executive branch have better information about the link between
                     resources and results, they can make the trade-offs and choices cognizant
                     of the many and often competing claims on the federal budget.



Improved Financial   The PMA initiative to improve financial performance is aimed at ensuring
Performance          that federal financial systems produce accurate and timely information to
                     support operating, budget, and policy decisions. It focuses on key issues
                     such as data reliability, clean financial statement audit opinions, and
                     effective financial management systems and internal control. Our work
                     also demonstrates the importance of improvement efforts that are under
                     way. In the area of financial performance, however, we have pointed out
                     that the federal government is a long way from successfully implementing
                     the statutory reforms that Congress enacted during the 1990s.

                     Reliable cost data are critical for effective performance measurement to
                     support program management decisions in areas ranging from program
                     efficiency and effectiveness to sourcing and contract management. For



                     Page 10                                                           GAO-03-556T
effective management, this information must not only be timely and
reliable, but also both useful and used. Under this PMA initiative, agencies
are expected to implement integrated financial and performance
management systems that routinely produce information that is (1)
timely—to measure and affect performance immediately, (2) useful—to
make more informed operational and investing decisions, and
(3) reliable—to ensure consistent and comparable trend analysis over time
and to facilitate better performance measurement and decision making.
This result is a key to successfully achieving the goals that Congress
established in the CFO Act and other federal financial management reform
legislation.

The executive branch management scorecard for the financial performance
area not only recognizes the importance of achieving an unqualified or
“clean” opinion from auditors on financial statements, but also focuses on
the fundamental and systemic issues that must be addressed in order to
routinely generate timely, accurate, and useful financial information and
provide sound internal control and effective compliance systems.

PMA stated that a clean financial audit is a basic prescription for any well-
managed organization, and recognized that “most federal agencies that
obtain clean audits only do so after making extraordinary, labor-intensive
assaults on financial records.” Receiving a clean opinion on annual
financial statements is an important milestone, which 21 of the 24 agencies
designated under the CFO Act achieved for fiscal year 2002.

Even more critical, however, is the capability and quality of the supporting
financial management systems in ensuring that agencies can meet the
scorecard measures for timely, accurate, and useful financial, program
cost, and other important management information needed for decision
making and monitoring government performance every day. The scorecard
also measures whether agencies have any material internal control
weaknesses or material noncompliance with laws and regulations, and
whether agencies meet Federal Financial Management Improvement Act
(FFMIA)10 requirements. As stated in PMA, without sound internal controls
and accurate and timely financial information, it will not be possible to


10
 FFMIA requires auditors to report whether agencies’ financial management systems
comply with federal financial management systems requirements, applicable federal
accounting standards (U.S. generally accepted accounting principles), and the U.S.
Government’s Standard General Ledger at the transaction level.




Page 11                                                                    GAO-03-556T
accomplish the President’s agenda to secure the best performance and
highest measure of accountability for the American people.

Much work remains to be done across government to improve financial
performance, as shown by the December 2002 scorecards. Of the 22 CFO
Act agencies that OMB scored,11 15 were in the red category for financial
performance.12 This is not surprising, considering the well-recognized need
to transform financial management and other business processes at
agencies such as the Department of Defense, the results of our analyses
under FFMIA, and the various financial management operations we have
designated as high risk. Four agencies improved their scores from the
initial baseline evaluation for financial performance as of September 30,
2001; 13 however, two agencies’ scores declined, reflecting increased
challenges. 14 Overhauling financial management represents a challenge
that goes far beyond financial accounting to the very fiber of a department’s
business operations and management culture, particularly at agencies with
longstanding problems, such as DOD.15 Further, establishing sound
financial management will be a critical success factor for the
implementation of the Department of Homeland Security.16

In the area of financial performance we have continued to point out that
the federal government is a long way from successfully implementing
needed financial management reforms. Widespread financial management



11
 The Federal Emergency Management Agency, which was consolidated into the
Department of Homeland Security, and the Nuclear Regulatory Commission were not
scored. The Department of Homeland Security also received a red in financial performance.
12
   These include the Departments of Agriculture, Commerce, Defense, Education, Health and
Human Services, Housing and Urban Development, the Interior, Justice, State,
Transportation, the Treasury, and Veterans Affairs; the Agency for International
Development; and the National Aeronautics and Space Administration.
13
 The Departments of Energy and Labor, and the Environmental Protection Agency and
Office of Personnel Management.
14
 The National Aeronautics and Space Administration and the Small Business
Administration declined.
15
 U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Defense, GAO-03-98 (Washington, D.C.: January 2003); and GAO-03-119.
16
 U.S. General Accounting Office, Homeland Security: Management Challenges Facing
Federal Leadership, GAO-03-260 (Washington, D.C.: Dec. 20, 2002).




Page 12                                                                     GAO-03-556T
system weaknesses, poor recordkeeping and documentation, weak internal
controls, and the lack of information have prevented the government from
having the cost information needed to effectively and efficiently manage
operations through measuring the full cost and financial performance of
programs and accurately reporting a large portion of its assets, liabilities,
and costs. The government’s ability to adequately safeguard significant
assets has been impaired by these conditions.

One of the challenges that many agencies face is the difficulty of ensuring
that underlying financial management processes, procedures, and
information systems are in place for effective program management.
Agencies need to take steps to continuously improve internal controls and
underlying financial and management information systems to ensure that
managers and other decision makers have reliable, timely, and useful
financial information to ensure accountability; measure, control, and
manage costs; manage for results; and make timely and fully informed
decisions about allocating limited resources. In October 2002, we reported
that meeting FFMIA requirements presents long-standing, significant
challenges that will only be met through time, investment, and sustained
emphasis on correcting deficiencies in federal financial management
systems.17 The widespread systems problems facing the federal
government need sustained management commitment at the highest levels
of government to ensure that these needed modernizations come to
fruition. PMA provides the visibility needed for sustaining these efforts.

This PMA initiative also focuses special attention on addressing erroneous
payments, credit card abuse in the federal government, and asset
management. These areas, on which we have reported problems and
challenges, have undermined government financial performance.18 Our
work has shown, for example, that the Centers for Medicare & Medicaid
Services (CMS) has made improvements in assessing the level of improper
payments, collecting overpayments from providers, and building the
foundation for modernizing its information technology. Nevertheless, much


17
 U.S. General Accounting Office, Financial Management: FFMIA Implementation
Necessary to Achieve Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).
18
  U.S. General Accounting Office, Financial Management: Coordinated Approach Needed
to Address the Government’s Improper Payments Problems, GAO-02-749 (Washington,
D.C.: Aug. 9, 2002); Government Purchase Cards: Control Weaknesses Expose Agencies to
Fraud and Abuse, GAO-02-676T (Washington, D.C.: May 1, 2002); and High-Risk Series:
Federal Real Property, GAO-03-122 (Washington, D.C.: January 2003).




Page 13                                                                    GAO-03-556T
work remains to be done, given the magnitude of its challenges to
safeguard program payments. This includes more effectively overseeing
Medicare’s claims administration contractors, managing the agency’s
information technology initiatives, and strengthening financial
management processes across multiple contractors and agency units. In
light of these challenges and the program’s size and fiscal significance,
Medicare remains on our list of high-risk programs.19

Across government, there is a range of financial management improvement
initiatives under way that, if effectively implemented, will improve the
quality of the government’s financial management and reporting. Federal
agencies have started to make progress in their efforts to modernize their
financial management systems and improve financial management
performance as called for in PMA.

In August 2001, the Principals of the Joint Financial Management
Improvement Program (JFMIP) began a series of periodic meetings and
have agreed on key financial management reform issues such as better
defining measures for financial management success.20 The Executive
Branch Management Scorecard embraces these new measures. The JFMIP
Principals also agreed that agency financial statement reporting should be
significantly accelerated to improve the timeliness of the government’s
financial statements and to discourage costly efforts designed to obtain
unqualified opinions on financial statements without addressing underlying
systems challenges. For fiscal year 2004, audited agency financial
statements are to be issued no later than November 15, with the U.S.
government’s audited consolidated financial statements becoming due by
December 15. Two agencies, the Department of the Treasury and the Social
Security Administration, met the accelerated date for fiscal year 2002.
Although many actions have been taken, the continued leadership and
personal commitment of the Principals is necessary to continue the
momentum for improving the government’s financial management and
performance.




19
 U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Health and Human Services, GAO-03-101 (Washington, D.C.: January 2003);
and GAO-03-119.
20
 The JFMIP principals are the Secretary of the Treasury, the Director of OMB, the Director
of OPM, and the Comptroller General of the United States.




Page 14                                                                      GAO-03-556T
Expanded Electronic   Electronic government (e-government) offers many opportunities to better
Government            serve the public, make government more efficient and effective, and reduce
                      costs. Federal agencies have implemented a wide array of e-government
                      applications, including using the Internet to collect and disseminate
                      information and forms; buy and pay for goods and services; submit bids
                      and proposals; and apply for licenses, grants, and benefits. Although
                      substantial progress has been made, the government has not yet fully
                      reached its potential in this area.21

                      Recognizing the magnitude of challenges facing the federal government,
                      Congress has enacted important legislation to guide the development of e-
                      government. In 1998, Congress enacted the Government Paperwork
                      Elimination Act, which requires federal agencies to provide the public,
                      when practicable, the option of submitting, maintaining, and disclosing
                      required information electronically. More recently the E-Government Act of
                      2002 includes provisions to promote the use of the Internet and other
                      information technologies to provide government services electronically;
                      strengthen agency information security; and define how to manage the
                      federal government’s growing information technology human capital
                      needs. In addition, this act established an Office of Electronic Government
                      within OMB to provide strong central leadership and full-time commitment
                      to promoting and implementing e-government.

                      To implement this PMA initiative, OMB has selected 25 e-government
                      efforts that focus on a wide variety of services, aiming to simplify and unify
                      agency work processes and information flows, provide one-stop services to
                      citizens, and enable information to be collected on line once and reused,
                      rather than being collected many times. For example, Recreation One-Stop
                      is a Web portal for a single point of access to information about parks and
                      other recreation areas. There are other e-government efforts that do not
                      necessarily rely on the Internet, such as the e-payroll initiative to
                      consolidate federal payroll systems. The results from these e-government
                      initiatives, according to OMB, could produce several billions of dollars in
                      savings from improved operational efficiency. To obtain such savings—and
                      significantly improve service to citizens—it will be critically important that
                      these efforts are well managed as the government undertakes the
                      challenging task of turning good ideas into real-world results.


                      21
                       U.S. General Accounting Office, Electronic Government: Proposal Addresses Critical
                      Challenges, GAO-02-1083T (Washington, D.C.: Sept. 18, 2002).




                      Page 15                                                                   GAO-03-556T
While many of the e-government initiatives are showing tangible results,
progress has been uneven. Our review of the planning documents for the e-
government initiatives highlight the critical importance of management and
oversight to their success.22 Important aspects—such as collaboration
among agencies and other governmental entities and a focus on identifying
and addressing customers’ needs—had not been incorporated into early
program plans for many of the projects, and major uncertainties in funding
and milestones were not uncommon. In particular, fewer than half
addressed collaboration and customer focus, despite the importance of
these topics to e-government strategy and goals. Similarly, the accuracy of
estimated costs in the funding plans was questionable and some of the
estimates changed significantly between May and September 2002.
Accurate cost, schedule, and performance information is essential to
ensure that projects are on schedule and achieve their goals.

In order to help ensure the success of the President’s objective of
expanding e-government to improve the potential value of government to
citizens, we have recommended that the Director of OMB ensure that the
managing partners for all e-government initiatives (1) focus on customers
by soliciting input from the public and conducting user needs assessments,
(2) work with partner agencies to develop and document effective
collaboration strategies, and (3) provide OMB with adequate information to
monitor the cost, schedule, and performance.23

Increasingly, the challenges that the government faces are
multidimensional problems that cut across numerous programs, agencies,
and governmental tools. For example, a critical aspect of implementing
effective e-government solutions and developing and deploying major
systems development projects is ensuring that robust information security
is built into these endeavors early and is periodically revisited.

Since we designated computer security in the federal government as high
risk in 1997, there is evidence that pervasive weaknesses continue. For
example, although the Internal Revenue Service (IRS) had corrected or


22
 U.S. General Accounting Office, Electronic Government: Success of the Office of
Management and Budget’s 25 Initiatives Depends on Effective Management and
Oversight, GAO-03-495T (Washington, D.C.: Mar. 13, 2003).
23
 U.S. General Accounting Office, Electronic Government: Selection and Implementation of
the Office of Management and Budget’s 24 Initiatives, GAO-03-229 (Washington, D.C.: Nov.
22, 2002).




Page 16                                                                     GAO-03-556T
                       mitigated many of the computer security weaknesses identified in our
                       previous reports, much more needs to be done to resolve the significant
                       control weaknesses that continue within IRS’ computing environment and
                       to be able to promptly address new security threats and risks as they
                       emerge.24 Related risks have escalated, in part because of the rapid
                       increase in computer interconnectivity and increasing dependence on
                       computers to support critical operations and infrastructures, such as
                       power distribution, water supply, national defense, and emergency
                       services. This year, we expanded this high-risk area to include protecting
                       information systems that support our nation’s critical infrastructures.
                       Among the actions essential to sustaining federal information security
                       improvements are the agencies’ development of effective risk management
                       programs and the development of a comprehensive strategy to guide
                       agencies’ efforts.

                       The growth in electronic information—as well as the new security threats
                       facing our nation—highlight privacy issues. On-line privacy has emerged as
                       one of the key—and most contentious—issues surrounding the continued
                       evolution of the Internet. The government cannot realize the full potential
                       of the Internet until people are confident that the government will protect
                       their privacy when they visit its web sites. We have made recommendations
                       to strengthen governmentwide privacy guidance and oversight of agency
                       practices that OMB has not yet implemented. For example, we
                       recommended that the Director of OMB determine whether current
                       oversight strategies are adequate to ensure agencies’ adherence to web site
                       privacy policies and whether the policies will need further revision as web
                       practices continue to evolve.25



Competitive Sourcing   As part of the PMA initiative to achieve efficient and effective competition
                       between public and private sources, the administration has committed to
                       simplifying and improving the procedures for evaluating public and private
                       sources. Among the factors that agencies must consider as they determine
                       how best to meet their missions is whether the public or private sector


                       24
                        U.S. General Accounting Office, High-Risk Series: Protecting Information Systems
                       Supporting the Federal Government and the Nation’s Critical Infrastructures, GAO-03-121
                       (Washington, D.C.: January 2003); and Financial Audit: IRS’ Fiscal Year 2001 and 2000
                       Financial Statements, GAO-02-414 (Washington, D.C.: Feb. 27, 2002).
                       25
                        U.S. General Accounting Office, Internet Privacy: Agencies’ Efforts to Implement OMB’s
                       Privacy Policy, GAO/GGD-00-191 (Washington, D.C.: Sept. 5, 2000).




                       Page 17                                                                    GAO-03-556T
would be the most appropriate provider of the services the government
needs. Aspects of the current process for making such decisions have been
criticized as cumbersome, complicated, and slow. Against this backdrop,
and in response to a requirement in the National Defense Authorization Act
for fiscal year 2001, the Comptroller General convened a panel of experts
to study the current process used by the government to make sourcing
decisions. The Commercial Activities Panel, consisting of representatives
from agencies, federal labor unions, private industry, and other individuals
with expertise in this area, conducted a yearlong study. The panel members
heard repeatedly about the importance of competition and its central role
in fostering economy, efficiency, and continuous performance
improvement. The panel strongly supported continued emphasis on
competition and concluded that whenever the government is considering
converting work from one sector to another, public-private competitions
should be the norm, consistent with the principles adopted unanimously by
the panel.26

As part of the administration’s efforts to advance this PMA initiative and
implement the recommendations of the Commercial Activities Panel, OMB
published proposed changes to Circular A-76 for public comment. This
circular sets forth federal policy for determining whether federal
employees or private contractors will perform commercial activities
associated with conducting the government’s business. In January, the
Comptroller General commented on OMB’s proposed revision, and noted
that in many ways it was consistent with the sourcing principals and
recommendations adopted by the Commercial Activities Panel.27 In
particular, the proposal stresses the use of competition in making sourcing
decisions and, through reliance on procedures contained in the Federal
Acquisition Regulation, should result in a more transparent, expeditious,
fair, and consistently applied competitive process. The proposal should
promote sourcing decisions that reflect the best overall value to the
agencies, rather than just the lowest cost. Importantly, the proposed
revision also should result in greater accountability for performance,
regardless of the service provider selected.




26
 Improving the Sourcing Decisions of the Government. Final report of the Commercial
Activities Panel (Washington, D. C.: April 2002).
27
 U.S. General Accounting Office, Proposed Revisions to OMB Circular A-76, GAO-03-391R
(Washington, D.C.: Jan. 16, 2003).




Page 18                                                                  GAO-03-556T
There are several areas, however, where the proposed revisions to the
circular were not consistent with the principles or recommendations of the
panel. Specifically, these include the absence of a link between sourcing
policy and agency missions, unnecessarily complicated source selection
procedures, certain unrealistic time frames, and insufficient guidance on
calculating savings. Federal sourcing policy should support agency
missions, goals, and objectives. In other words, sourcing policy is not just
about choosing among potential service providers. Rather, an agency’s
sourcing policy should be viewed as part of an overall strategy for how best
to accomplish the mission of the agency, including how it conducts human
capital planning. The circular requires that agencies report the savings that
accrue from A-76 competitions but does not provide any guidance on how
savings are to be calculated. Our work examining the use of Circular A-76
in the Department of Defense has shown a lack of consistency among and
even within the military services in how they calculate savings. Additional
OMB guidance, additional training, technical resources, or other support
for agency officials would be helpful for agency officials in preparing for
and participating in public-private competitions.

The critical issue for all affected parties is how the government’s sourcing
policies are implemented. In this regard, one of the panel’s sourcing
principles was that the government should avoid arbitrary numerical or
full-time equivalent goals.28 This principle is based on the concept that the
success of government programs should be measured by the results
achieved in terms of providing value to the taxpayer, not the size of the in-
house or contractor workforce. Although the proposed revised circular
contains no numerical targets or goals for competitive sourcing, this has
been a controversial area in the past. In our view, the administration needs
to avoid arbitrary targets or quotas, or any goal that is not based on
considered research and analysis.




28
 Full time equivalent is a measure of staff hours equal to those of a full-time employee
working 40 hours per week over the course of a year.




Page 19                                                                        GAO-03-556T
Continuing Attention Is   As my testimony today has highlighted, serious and disciplined efforts are
                          needed to improve the management and performance of federal agencies
Needed to Improve         and to ensure accountability. Along with OMB’s leadership in implementing
Management and            PMA, it will only be through the attention of Congress, the administration,
                          and federal agencies, that progress can be sustained and, more importantly,
Performance Across        accelerated. To be successful, management improvement initiatives must
the Federal               become a part of agencies’ programs and day-to-day actions.
Government
                          Congressional support has proven to be critical in sustaining interest in
                          management initiatives over time. Congress has served as an institutional
                          champion for many of the management reform initiatives over the years,
                          such as the CFO Act and GPRA. Congress has also provided a consistent
                          focus for oversight and has reinforced important policies. Making pertinent
                          and reliable information available will be necessary for Congress to
                          adequately assess agencies’ progress toward PMA initiatives and to ensure
                          accountability for results.

                          To facilitate congressional oversight and support executive branch
                          performance and decision making, the administration could develop and
                          use a governmentwide performance plan. This plan, required under the
                          GPRA, could become a valuable tool to help Congress and the executive
                          branch address critical federal performance and management issues by
                          building on the knowledge about the range of programs and tools,
                          including baseline and trend information, that are directed toward
                          achieving similar results. The first governmentwide performance plan was
                          issued in February 1998, and it reflected the challenges of preparing a plan
                          for an entity as large and diverse as the federal government. We noted that,
                          among other things, attention was needed to emphasize an integrated,
                          governmentwide perspective throughout the plan.29

                          Preparing a governmentwide plan could build on the administration’s
                          efforts to assess progress across the government as well as contribute to
                          efforts to compare the performance results across similar programs that
                          address common outcomes. Although there has been limited progress,
                          efforts to date have not provided the Congress and others with an
                          integrated perspective on the extent to which programs and tools


                          29
                           U.S. General Accounting Office, The Results Act: Assessment of the Governmentwide
                          Performance Plan for Fiscal Year 1999, GAO/AIMD/GGD-98-159 (Washington, D.C.: Sept. 8,
                          1998).




                          Page 20                                                                  GAO-03-556T
           contribute to national goals and position the government to successfully
           meet 21st century demands.

           Mr. Chairman, we are pleased to be able to participate in this hearing today
           and look forward to participating in future oversight hearings you have
           planned on specific PMA initiatives. We have issued a large body of reports,
           guides, and tools on issues directly relevant to PMA, and we plan to
           continue to actively support congressional and agency actions to address
           today’s challenges and prepare for the future. As I have discussed in my
           statement today, although efforts to transform agencies by improving their
           management and performance are under way, more remains to be done to
           ensure that the government has the capacity to deliver on its promises and
           meet current and emerging needs. Decisive action and sustained attention
           will be necessary to transform the federal government, maximize its
           performance, and ensure accountability.


           This concludes my prepared statement. I would be pleased to respond to
           any questions that you or other members of the subcommittee may have.




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